Sobeys Q1 Sales Slightly Hurt by Tobacco Sales Slump

Sobeys Q1 Sales Slightly Hurt by Tobacco Sales Slump

STELLARTON, Nova Scotia -- Sobeys, Inc. here yesterday reported a 1.1 percent sales increase for its first quarter ended Aug. 5 of CAN $3.31 billion (US $2.95 billion), compared with $3.27 billion in the year-ago period. During the quarter, same-store sales went up 2.8 percent, and basic net earnings per share were 77 cents, a 4.1 percent rise from last year.

According to Sobeys, first-quarter sales growth was driven by the company's further implementation of sales and merchandising initiatives across its stores, along with more retail square footage as a result of new store openings and a continuing program to expand and remodel existing locations.

The grocer opened or relocated 15 corporate and franchised stores during the quarter, vs. three last year, while seven were remodeled, compared with three in the year-ago period. Thirteen stores closed in the first quarter of 2007, the same number as in the first quarter of 2006. Additionally, 14 stores were rebannered, as opposed to two last year.

"We achieved solid first-quarter results while remaining right on track with improvements to our supply chain and systems capabilities," said Sobeys president and CEO Bill McEwan. "In addition, we recently completed the acquisition of 25 stores in Quebec, further strengthening our position in the region."

Sales were negatively affected by decreases in wholesale tobacco sales, which went down $25.4 million; and the disposition of the company's Cash and Carry business in the provinces of Ontario and Quebec. Excluding those impacts, sales growth would have been 3.8 percent.

Sobeys noted that a major Canadian tobacco supplier said that it would sell and distribute directly to some of the retailer's customers, starting this month. As a result, the company expects annual sales to decline by about $300 million. Due to the "significantly" lower margins of tobacco products as compared with other products, however, Sobeys doesn't expect the loss of those sales to materially affect earnings. The company added that it was "currently exploring options to mitigate the financial impact of this decision."

The company's board of directors also declared a quarterly dividend of 15 cents per share on Sobeys common shares, an increase of 7.1 percent from the 14 cents paid at the end of July. The dividend is payable on Oct. 31 to shareholders of record on Oct. 13.

Sobeys owns or franchises over 1,300 stores in all 10 Canadian provinces under such banners as Sobeys, IGA Extra, IGA, Foodland, and Price Chopper.